ARR (Annual Recurring Revenue)
Annual Recurring Revenue (ARR) is the yearly equivalent of your recurring subscription revenue. It's MRR × 12 and is the primary metric investors use to value SaaS companies.
Formula
In depth
ARR is used in fundraising conversations because it's easier to benchmark against valuation multiples. Seed-stage SaaS companies typically raise at 10–30× ARR; Series A at 8–15× ARR.
ARR vs Revenue: ARR counts only recurring subscription revenue. One-time fees, professional services, and setup fees are excluded. This distinction matters because ARR is predictable — regular revenue is not.
Key ARR milestones: - $10K ARR: proof of concept - $100K ARR: product-market fit emerging - $1M ARR: ready for Seed round - $3M ARR: Series A territory - $10M ARR: Series B territory
Real example
A SaaS with $83,333 MRR has $1M ARR. At a 10× ARR multiple, the company would be valued at $10M pre-money in a fundraising round.
Tools & calculators
Related terms
MRR (Monthly Recurring Revenue)
Monthly Recurring Revenue (MRR) is the predictable, normalized monthly revenue generated from all active subscriptions. It's the north star metric for SaaS companies.
CAC (Customer Acquisition Cost)
Customer Acquisition Cost (CAC) is the total cost of acquiring one new paying customer, including all marketing and sales spend.
LTV (Lifetime Value)
Customer Lifetime Value (LTV or CLV) is the total predicted revenue you'll earn from a customer over the entire duration of your relationship.
Churn Rate
Churn rate is the percentage of customers (or revenue) that cancels or doesn't renew in a given time period. It's the single most important retention metric for subscription businesses.
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